Planning to invest in Mombasa? This is what you need to know

KENYA, SEPTEMBER 10 — Mombasa is Kenya’s second largest city. The City which is located at the Kenyan Coast is home to East Africa’s busiest port -“The Port of Mombasa”. The city which is under the Mombasa County government remains one of the key investment destinations in Kenya buoyed by its strategic location and a tourist city with continued infrastructural development.

The city has a positive demographic dividend, with the population growing at an 8-year Compound Annual Growth Rate of 3.9 per cent, which is 1.3 per cent points higher than the national average population growth of 2.6 per cent per annum.

The city provides an opportunity for Real Estate Investments and here is where you can invest.

The top investment opportunity in the County lies in the retail sector, according to a survey by investment firm- Cytonn Real Estate, the development affiliate of Cytonn Investments.

These are areas with low retail space such as Kizingo and Tudor which are proximate to the Central Business District. The city also provides an investment opportunity in site and service schemes in areas earmarked for infrastructural developments such as along Mombasa-Mariakani Highway and  Port Reitz area.

RETAIL SECTOR

On average, the retail sector in Mombasa recorded an improvement in performance from 2016 to 2018, the “Mombasa Real Estate Investment Opportunity Report 2018” by Cytonn indicates.

Occupancy rates increased by 7.2 percentage points on average, annually from 82.0 per cent to 93.2 per cent.

Looking at yields, the sector attained rental yields of 8.3 per cent. Neighbourhood malls recorded high occupancy rates of 97.9 per cent on average, compared to the market average of 96.3 per cent.

This is attributable to their affordability with the average rents per square feet coming at Ksh 93.8, compared to community malls’ Ksh143.3 per square feet  while the amenities are similar. However, community malls recorded higher yields of 9.4 per cent , 1.1% higher than the market average at 8.3 per cent, owing to their higher rental rates of Ksh143.3 per square feet.

LAND PERFORMANCE

Cytonn focused on areas such as Nyali, Shanzu, Kizingo and Port Reitz. Over the last two years, the areas have recorded growth in asking land prices of 0.9 per cent, 24.5 per cent, 8.9 per cent, and 16.5 per cent, respectively, thus leading to an average capital appreciation of 12.6 per cent between 2016 and 2018 from an average of Ksh109.4 million in 2016 to Ksh115.4 million in 2018.

Fast developing areas such as Kizingo and Nyali, recorded the highest price per acre at Ksh244.6 million and Ksh134 million, respectively while in areas such as Port Reitz, land has appreciated by an average of 16.5 per cent attributable to ongoing expansion of road networks in the area such as the dualling of the Port Reitz Road.

RESIDENTIAL SECTOR – The residential sector recorded average returns of 7.2 per cent with rental yields and price appreciation of 5.1 per cent and 2.1 per cent, respectively. However, this is a 0.7 per cent points drop in returns compared to the 7.9 per cent in 2016.

4-bedroom typology recorded the highest returns to investors with an average of 8.0 per cent and the highest price appreciation of 2.4 per cent, indicated by the relatively high annual uptake rates of 21.3 per cent in comparison to the market average of 18.3 per cent.

The opportunity in the market lies in three and four-bedroom apartment units in the upper mid end segment which attained returns of 7.8 per cent and 9.8 per cent respectively.

“The opportunity in the residential sector is in three-bedroom and four-bedroom apartments in the upper mid-end segment in areas such as Nyali, Kizingo, and Shanzu with the units recording returns of 7.8 per cent and 9.8 per cent, respectively, higher than the market average of 7.2 per cent,” said  Wacu Mbugua, Research Assistant at Cytonn Real Estate.

COMMERCIAL OFFICE SECTOR – The office sector in Mombasa recorded a relatively low performance with average rental yields of 5.1 per cent in 2018, a 0.5 per cent points decline from 5.6 per cent recorded in 2016. This is attributable to a decline in rental rates which came in at Ksh77.5 per square feet in 2018, a compounded annual drop of 11.5 per cent from the Ksh99.0 per square feet recorded in 2016.

Mixed-use developments recorded better returns with average rental yields of 7.4 per cent  compared to the market average of 5.1 per cent, attributable to their relatively high rental rates with an average of Ksh108 per square feet compared to the market average of Ksh 77.5 per square feet.

Grade C offices recorded the lowest returns with average rental yields of 3.2 per cent attributable to a low demand for such due to their tendency to lack sufficient amenities, especially parking spaces as majority of them are located within the CBD thus limiting land for parking and quality space.

Generally, the commercial sector is expected to continue on a decline due to reluctance of investors to relocate business to the region, and the local population’s limited ability to occupy investment grade office developments.

However, the report notes that generally, the Mombasa Market has potential for growth in future especially with the ongoing infrastructural developments, improved security and the return of political calm

KEY DRIVERS 

The drivers of real estate performance include the positive demographic aspect and infrastructural improvements – such as the Standard Gauge Railway (SGR) that started operations in June last year which has improved the ease of doing business in the County and thus attracted investment.

Another factor is the tourism sector as Mombasa is recognized as one of the major tourist attraction areas in Kenya, partly due to its rich cultural heritage and also its proximity to the Indian Ocean creating demand for retail facilities, luxury dwellings and accommodation facilities.

The city also has a strong economic growth – recording an average GDP Per Capita of US$935, 34.7 per cent higher than the national average of US$694 according to a 2015 study by the World Bank.

“Out of the four real estate themes under evaluation in Mombasa County, one theme, that is land, has a positive outlook, two themes, that is, retail and the residential sectors have a neutral outlook while one theme, that is office has a negative outlook, thus the outlook for the Mombasa real estate market is neutral.  The market, however, has pockets of value in various sectors,” the Cytonn report reads in part.

Speaking during the release, Cytonn’s Senior Manager Regional Markets, Johnson Denge said: “Our outlook for the performance of the real estate sector in Mombasa County is neutral. However, there exists an opportunity for investment in the retail sector in undersupplied areas such as Tudor on account of an expanding middle class and continued interest from retailers such as Shoprite, restaurants such as Coldstone, Domino’s Pizza as well as LC Waikiki who have recently taken up mall space in Mombasa County.”

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